Western Illinois University

CHICAGO – S&P Global Ratings dropped Western Illinois University two notches to the lowest rung on the investment grade scale, citing the state's prolonged budget mess.

The downgrade to BBB-minus from BBB-plus impacts auxiliary facilities system revenue bonds sold in 2010, 2012 and $9 million sold earlier this year, as well as certificates of participation from issues in 2010 and 2015. The Western Illinois University Board of Trustees is the formal issuer. The outlook is negative.

The rating agency had just hit the university with a one-notch downgrade in May.

"The downgrade and negative outlook reflect our view of Illinois' ongoing severe challenges, due to its weak financial position, and the expected weakening on WIU's financial position for fiscal 2016 and fiscal 2017 due to lower state funding," said S&P analyst Stephanie Wang.

The downgrade underscores the weight of the prolonged state budget impasse on the state's nine public universities and how $600 million of funding approved in the spring and $650 million in a stopgap budget plan in late June has fallen short of easing balance sheet pressures.

"Throughout fiscal 2016, the state's public universities, including WIU, received only a small fraction of historical operating appropriations, placing significant liquidity stress on these institutions given their revenue dependence on these funds to support operations," S&P wrote.

Longer term pressure also abounds as Gov. Bruce Rauner and lawmakers will try to hash out a balanced, long term spending plan early next year. The stopgap spending was aimed at getting the state through the November election and remainder of the calendar year.

"Furthermore, given the length of the fiscal 2016 budget impasse and the absence of a substantial agreement among elected leaders, it is our opinion that state appropriation outcomes will continue to remain uncertain in the intermediate term," S&P wrote.

Without funding, the university could face substantial liquidity woes, according to S&P.

Illinois' public universities have suffered several rounds of downgrades over the state's budget impasse. Moody's Investors Service dropped six universities before the ink was even dry on the stopgap spending legislation.

Moody's previously rated Western Illinois Baa3 with a negative outlook but withdrew the rating after its rated debt was retired. The university's 2016 bonds were rated only by S&P and carry Build America Mutual Assurance Co. AA-rated coverage.

Western' main campus is in Macomb and serves nearly 8,000 students.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.